Meta Description: Looking for tax saving options according to income tax slab 2020-21? Read this to know how much tax your life insurance saves
Know How Much Tax Your Life Insurance Saves!
Life insurance can make for a great financial product, especially if you are looking for long-term savings. You know that it is an important part of your overall financial plan and want to make sure that you get the best deal possible.
When it comes to insurance, the biggest calculation you made was your monthly premium. You just assumed that the returns will be fair and justified for the risk you’ve taken by paying the premium. And that the returns from your investment would cover the loss of income in case of an unfortunate event.
But have you ever calculated a rough estimate of how much you save on taxes in your life insurance premiums? In this article, we are providing the income tax details as per the income tax slab 2020-21 and inform you how the premiums and returns on life insurance policies help you save taxes under section 80C.
What is an Income Tax Slab?
Each year in the country, a new budget is announced which means that each year the tax support for businesses and individuals also changes. The supported economy also goes through adjustments by lowering taxes or raising them back up especially if the country’s economy has gone through significant changes since last year.
There were no tax changes for individuals under tax slab 2020-21as the finance minister did not make any announcements regarding income tax laws. However, senior citizens over the age of 75 were exempted from filing income taxes on pension payments.
income Tax Slab 2020-21
|Income Tax Slab||Tax Rate|
|Up to Rs.2.5 lakh||Nil|
|Above Rs.2.50 – Rs.5 lakh||5% of the total income that is more than Rs.2.5 lakh|
|Above Rs.5 lakh – Rs.7.50 lakh||10% of the total income that is more than Rs.5 lakh + Rs.12,500|
|Above Rs.7.50 lakh – Rs.10 lakh||15% of the total income that is more than Rs.7.5 lakh + Rs.37,500|
|Above Rs.10 lakh – Rs.12.50 lakh||20% of the total income that is more than Rs.10 lakh + Rs.75,000|
|Above Rs.12.50 – Rs.15 lakh||25% of the total income that is more than Rs.12.5 lakh + Rs.1,25,000|
|Above Rs.15 lakh||30% of the total income that is more than Rs.15 lakh + Rs.1,87,500|
Income Tax Benefits Under Life Insurance Policies
Life insurance is one of the primary and essential requirements to securing a financially balanced future, especially if you live in a country where the economy isn’t very stable. What life insurance essentially does is draw capital benefits from the money you pay on your monthly premium which could eventually save your family’s house, college funds, etc.
Moreover, under section 80C of the Income Tax Act and 10D, one can get a tax deduction on life insurance. Under section 80C, a sum insured of up to ₹1.5 lakh comes under this deduction. Similarly, Section 10(10D) offers income tax exemption on the maturity proceeds if such premium has not exceeded 10% of the sum assured or the sum assured is at least ten times the premium paid.
If you’ve opted for a policy with a sum assured that is less than 10 times the premium – for instance, if you pay Rs.1 lakh as premium for a sum assured of Rs.5 lakh – then the insurer will deduct any future claim on this basis up to 10% of the sum assured. In the example above, your deduction would be rounded down to Rs.50,000 and not Rs.1 lakh.
Also, in the event of the policy holder’s death, it is tax-free for those who qualify as beneficiaries. However, at maturity, since the policy does not meet the criteria for an income tax benefit and doesn’t qualify for a deduction under Section 80C of the Income Tax Act of 1961, it would be taxed as regular income.
As per section 80C of the Income Tax Act 1961 you can claim a deduction on your taxable income for any premiums paid for a term or whole life insurance policy. The premium on a life insurance policy that is issued before March 2012 is eligible for tax deduction up to the amount of Rs 1,50,000 if the premium paid in a year amounts to at least ₹20,0000.
For policies that have been issued from April 1st, 2012, one can deduct up to 10% of the sum insured from their tax bill. But if you voluntarily surrender your policy before 2 years for whatever reason, then you won’t be able to claim any benefits on the premiums paid.
Talking about section 10D of the Income Tax Act, when you surrender a Life Insurance Policy after a certain period or if you cancel it, then the amount you receive from your company will be tax-free for the receiver.
This is because under Section 10(10D) of Income Tax Act, 196 (Section 10(10D)), surrendering the policy or cancelling it doesn’t result in any income being generated by the sum assured (saving fund) and bonus paid out at that point.
Any amount which is payable to the insured under life insurance policies in India is tax-deductible for the buyer. The deductible amount can be calculated regarding maturity benefits, death benefits, and other sums allocated by way of bonus, the surrender value of the policy, and even any gains or proceeds that are received after maturity. Section 10(10D) of Indian income tax law applies to ULIPs as well.
Life insurance is a long-term investment and, in this article, you can know how your tax-saving kitty should be built through some of the best tax-saving options. This step-by-step guide will show you how section 80C has been made available to buy insurance plans thus reducing the impact of income tax on these premiums. Therefore, get the best life insurance right now and enjoy countless tax-saving benefits.
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